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California Bar Board Requests Comment on More Lawyer Fee Sharing

March 13, 2020, 8:28 PM

California lawyers could expand fee-sharing arrangements with non-profits under a proposed rule out for public comment as part of the state bar’s effort to improve access to justice.

The proposal is one of three the California Bar Board of Trustees approved Thursday for comment. The proposals are in a task force report from a special bar group formed to investigate how regulatory and bar rule changes can help Californians struggling to afford legal help.

Though the board approved only minor changes to a controversial rule regarding law firm ownership — Bar Rule 5.4 — more significant changes to that regulation still could occur if the panel decides at its next meeting to set up a new regulatory “sandbox” that would allow the state to experiment with new access to justice solutions before committing to their implementation.

A recently published study found that 55% of Californians experience at least one civil legal problem in their household each year yet received inadequate or no legal help for 85% of these problems.

Debates on how to change the rules to increase access to justice have sprung up in other states across the country and even at the American Bar Association, which passed a resolution Feb. 17 in its House of Delegates that encourages innovative approaches in states and data collection around what is working.

These proposals to change state versions of ABA Model Rule 5.4 have been controversial at times, as opponents fear that too much change to profit sharing and ownership rules would eat into law firms’ business and open the door too wide to alternative legal services providers, such as the Big Four.

Ready for Comment

The proposal the trustees put up for comment in California is less expansive than previous rule changes floated.

It would alter 5.4 , which generally prohibits fee sharing with a nonlawyer, to add settlements to what a lawyer or firm could share with nonprofits. The existing ruleis limited to sharing a court- awarded legal fee with a nonprofit organization that qualifies under Section 501(c)(3) of the Internal Revenue Code.

The proposal was not controversial among the task force, said Justice Lee Edmon, California Court of Appeal, Second District, presiding justice and task force chairwoman.

“This rule change is intended to directly enhance the ability of a nonprofit legal services organization to expand its activities and funding options through sharing in legal fees that are achieved through a settlement,” the task force said in a memo to the board.

A specific precedent for this proposed exception is found in the District of Columbia’s version of Rule 5.4., the task force said.

Proposed amendments to Rule 5.4 will return to the Committee on Professional Responsibility and Conduct for consideration after a 60-day public comment period.

Trustees tabled several votes until their next meeting May 14, including a new Rule 5.7 on addressing the delivery of nonlegal services provided by lawyers and businesses owned or affiliated with lawyers.

Weighing In

The proposed rules don’t go far enough quickly enough, said Jason Solomon, Stanford Center on the Legal Profession executive director, who spoke at a Thursday meeting on the proposals in San Francisco.

“The status quo is failing miserably,” said Solomon, adding of law firm ownership changes, “I know you’re being heavily lobbied by political interests that are seeking to protect their business model from competition.”

Gretchen Nelson, a Kreindler & Kriendler LLP partner and former board member at the meeting, warned there are ways for the bar to open up levels of capital to firms “but not through the medium of nonlawyer ownership in firms.”

“The risk to all of us and to clients if you open up the door to nonlawyer ownership of law firms is you will lose access to justice, not gain it. You will find lawyers being driven out of the business as a result of the drivers of profit-making organizations,” Nelson said.

Employing technology and permitting nonlawyers to handle tasks would help in access and help lawyers, others said.

“We are dealing with market inefficiencies where there’s a failure to get services to the public but there’s also a failure of lawyers to be able to have a sustainable practice,” said Jayne Reardon, Illinois Supreme Court Commission on Professionalism executive director.

“Most lawyers are in solo or small practice. And the research shows that frankly they’re struggling and dying on the vine out there,” with most of their time spent on administrative demands and chasing business, Reardon said.

“We need to figure out ways to free them from the nonpractice of law, tasks that can be done by other professionals so that lawyers can deliver legal services to the public,” she said.

Sam Skolnik contributed to this report.

To contact the reporter on this story: Joyce E. Cutler in San Francisco at jcutler@bloomberglaw.com
To contact the editor on this story: Rebekah Mintzer in New York at rmintzer@bloomberglaw.com

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